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New Overtime Rules Suspended for Now

November 28, 2016

Many employers have been wrestling with plans to comply with new U.S. Department of Labor (DOL) overtime rules since last May. That's when the rules were finalized, with a December 1 compliance deadline. Those new rules included raising the minimum salary overtime exemption to $913 per week from $455. A little more than a week before the deadline for the rules was to take effect, a federal court has issued an injunction, at least temporarily blocking implementation of the changes.

In its decision, the court stated it believes the DOL exceeded its authority in promulgating the rule. In addition, the court said the DOL failed to follow Congress's intent, which was to reexamine the duties test of the overtime rules, and not to focus solely on the salary level, as the final rules do.

The DOL's initial response was to state that it "strongly disagrees" with the ruling, and is "currently considering all of our legal options." A couple of short-term legal scenarios remain possible: The U.S. District Court for the Employers have several issues to deal with immediately. Those issues vary according to what actions they've already taken.

Employers that were waiting until December 1 to roll out their plans are in a better position simply to hold tight and act as if the regulations were never issued.

The benefits of a wait-and-see approach are that there's no disruption to the status quo and, in most cases, there will be no spike in payroll costs. However, that approach may also bring risks, including having to scramble to make adjustments if the regulations ultimately are upheld. That scrambling might involve paying extra wages due to affected employees retroactive to December 1. The courts are split on this issue. So there is clearly risk.

Some employers have already made their implementation strategy clear to employees. For employers that have announced plans to reclassify some employees from exempt to nonexempt, options include:

Giving those employees the choice of whether to become hourly, or remain in salaried status, while cautioning them that they might need to be moved to hourly status in the future, depending on the outcome of the legal battle,

Move forward with their conversion to hourly status to avoid possible future disruption if the regulations are upheld, or

Drop the plan to switch them to hourly status.

More important, some employers may have promised raises to certain employees in order to avoid the payment of overtime. Withdrawing an employee's promised raise could adversely affect the relationship with that employee.

Whatever actions, or non-actions, employers take with regard to the rule, it's essential to communicate as clearly as possible with employees about the issue. In all cases, we recommend that you contact labor counsel for guidance.